Kirkland Drafts Counsel Veto Right Language in Debt Documentation

Kirkland & Ellis recently drafted at least one debt document in the private credit universe that included the advisor veto-right provision that has roiled the leverage finance market, according to sources.

Lawyers that focus on primary debt issuances at the law firm included effective “disqualified lender counsel” language as part of the transaction documentation to give the borrower the right to name one law firm (other than existing counsel for the agent or lenders) that neither the agent nor any lender may retain in the future in connection with the credit facilities or any related transactions or documentation.

The provision has raised questions in the liability management and restructuring space over whether the language conflicts with one of the core principles in legal ethics, which is that clients have the right to choose their counsel. Clients’ near-absolute autonomy over choosing their own representation also comes up in the context of lawyers switching firms, and the American Bar Association, or ABA, has given guidance that affirms that clients get to decide who will represent them. A common exception, however, is a conflict of interest.

The right to veto lenders’ choice of counsel after the effective date of the debt document, unprecedented until now, is the latest in borrower-friendly technology that allows sponsors to influence the formation of lender groups.

Although the disqualified counsel concept has appeared in at least one broadly syndicated loan document for a private company prior to this year, that provision (excerpted below) was limited to a list of disqualified counsel and other advisors named by the sponsor as of the effective date and cannot subsequently be updated.
 

While still aggressive, the above disqualification counsel provision at least grants all parties a degree of transparency and certainty as to which counsel may be retained in a downside scenario. The recent veto version of the provision, however, creates considerable uncertainty for lenders by giving the borrower complete discretion to disqualify any law firm at any time, including lenders’ first choice of counsel.

Disqualified lender lists have followed a similar evolution. What initially started as a list of disqualified institutions identified at closing and competitors identified after closing has in recent years become a living blacklist that in loose documents can be updated by the borrower or sponsor at any time and for any reason.

Kirkland was the most retained legal advisor for company engagements for full-year 2024, followed by Latham & Watkins in second and then Ropes & Gray, Weil Gotshal and Sidley Austin in third place, according to Octus’ Americas Restructuring League Table. Kirkland took the first spot for the first half of 2025 as well.

Gibson Dunn was the most retained legal advisor for creditor/other engagements for full-year 2024, followed by Akin, Davis Polk, Paul Hastings and Milbank, Octus’ restructuring data shows. Gibson Dunn and Akin came in first and second, respectively, again, for the first six months of this year.

Kirkland did not respond to a request for comment.